Buckle your seatbelt: How to be a cash flow champion during turbulent times

If 2016 could be defined by the sharp increase in cataclysmic events (be that the tragic death of David Bowie or the U.S. election of a certain active tweeter), then so far 2017 can be defined by its penchant for uncertainty.

This has been particularly true over the past week, with each manifesto announcement ahead of June’s election causing yet more ups and downs in the rollercoaster we call Sterling.
Indeed, in our recent report, Sleeping Easy, we found that managing cash flow is the biggest finance-related worry for nearly three-quarters (74.3%) of small business leaders. Already, many entrepreneurs are relying on personal credit cards and loans to mend any difficult periods in their cash flow, and the instability of today’s operating environment only proves to make things more difficult. So how can small businesses effectively manage their cash flow in a volatile economy?

Turn to tech

Whatever the economic situation, rational judgements can’t be made unless the business owner has access to the big picture. Managing cash flow is traditionally a task that falls outside the remit of the accountant, so having access to accurate and up-to-date financial information may ease the burden for the small business leader. This can be achieved by switching from paper documents – which are often out of date before they’ve even left the printer – to using technology to keep a real-time record of accounts. With the economy in flux on a day-to-day basis, having real-time access to financial records means that you’re able to make decisions based upon the cash flow of today, rather than information from four months ago.

Financial software can also warn the user if they have any late payments on their books – a major cause of cash flow crises. It can also help invoicing with a number of templates to make managing cash flow smooth and professional, no matter the external volatility.

The lay of the land

Small businesses operate on small margins at the best of times and periods of economic volatility often mean that businesses have limited capital at available short notice.

With each new major development in national and global politics, small firms may want to address their exposure to any resulting negative effects. Understanding how a volatile economy could affect the business could give the entrepreneur enough notice to prepare and pivot when the impact hits, avoiding any sudden strikes to their cash flow.

For instance, small businesses that often trade with the EU might want to monitor the negotiations in Brussels in order to start building a picture of their business after the UK’s departure. By building up a picture of the worst-case scenario post-Brexit, small business leaders can hope for the best and begin to prepare by diversifying their supply chain or mitigating their exposure to unstable foreign currencies, ultimately keeping their finances ticking over.

Mind the gap

Many businesses are seasonal or find themselves in periods in which customer activity is minimal. Even at the best of times, these businesses can struggle to pay rent, wages, and suppliers. Adding the pressure of economic uncertainty to this can be the straw that breaks the camel’s back, causing cash flow to collapse and the business to be in trouble

Business owners might want to think about diversifying their offering to cater for these quieter months. Are there any auxiliary products or services the business can offer in order to draw in income? This is especially true of consultancies, which are easily able to address the additional skills of their team to expand their offering when finances are tight.

Ultimately, surviving turbulent times requires sound planning way in advance. This could mean a variety of things; baking in additional financial support to accommodate for late payments, for instance, or drawing up the worst case scenarios to prepare for difficult times. Entrepreneurs could even consider expanding the business’s offering to cater for quieter times. Applying sufficient foresight to the business plan can keep the cash flow statement healthy when times get tough.

You can Request a Quote or call 0800 028 1028 now to speak with an advisor about getting on top of your finances today to help your business navigate tomorrow.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.